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Continuity of employment in insolvency context

The Employment Appeal Tribunal (EAT) has held, in Da Silva Junior v Composite Mouldings and Design Limited, that continuity of employment was preserved where an employee of a company in voluntary liquidation was subsequently employed by a company with the same majority shareholder.

Mr Da Silva was employed by Andream Limited, a company in which Mr Greenwood was majority shareholder. Mr Greenwood was also the sole shareholder of Composite. On 1 December 2006, Mr Da Silva and the other employees of Andream were dismissed because of Andream's financial difficulties and Andream went into a members' voluntary liquidation. Composite acquired some of Andream's assets from the liquidator and began trading in January 2007. On 14 January 2007, Mr Da Silva began working for Composite.

Mr Da Silva was subsequently dismissed by Composite and the EAT held that he had sufficient continuity to bring his unfair dismissal claim because Composite was an "associated employer" of Andream at the time he became employed by Composite. The Insolvency Act 1986 provides that, following a voluntary winding up, a company continues to exist until it is actually dissolved. Andream had therefore not ceased to exist. Further, although the liquidator was legally in charge of Andream, in practical terms Mr Greenwood controlled both companies. They were therefore associated employers and Mr Da Silva was able to pursue his unfair dismissal claim.

Impact on employers

At a time where insolvencies are on the increase, this is a reminder that a break in continuity of employment will not necessarily occur where one company is liquidated and a new one set up to employ some of its staff.

It should be noted that TUPE was not considered in this case. However a voluntary liquidation is considered to be a "solvent" liquidation and the normal TUPE rules (including the preservation of continuity of employment) would normally apply.

Compare jurisdictions: Employment: Canada

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